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Matt Holmes & Cool Company - Case Study Example
Finance & Accounting
Pages 4 (1004 words)
Case Studies 1. Matt Holmes & Cool Company Evidently, the specified issue in the given case of Matt Holmes is new to the company. Therefore, a detailed study is essential to unfold the unseen aspects of the issue. To begin with, assent impairment occurs when an asset’s acquisition cost or net carrying value exceeds the future discounted cash flow…
Assets would be written down if the company continues to use those assets. Lack of recoverability of the net carrying amount must be recognized as asset impairment and it occurs under certain circumstances such as changes in regulation and business climate, technology changes, usage rate decline, and forecasts of a notable decline it the asset’s long term profitability. It appears that the Cool Company must perform an impairment test as the firm experiences changes in business climate. However, it must be noted that every change in business climate would not indicate asset impairment. ‘A quoted market price in an active market’ would be the best evidence of fair value and it must be applied as the basis for measurement (“Goodwill and other..”). Market inputs such as credit data and yield curve are some of the alternative methods of estimating fair value. From an asset impairment analysis, the Cool’s department manager would get valuable information that would assist him to determine whether or not those suspected assets should be written down. 2. King Company Good will is an account that can be seen in the asset side of the balance sheet. Often, good will arises as a result of acquisition of a company by another company. ...